Don’t be surprised if the World Wrestling Foundation schedules a new program called Smackdown: The Battle of the Septuagenarian Regulators.
Alan Greenspan, 75, and Arthur Levitt, 69, are fighting over whether different U.S. stock markets like the New York Stock Exchange, the Nasdaq market and the Philadelphia Exchange, should connect and form a centralized market.
At a Senate banking committee hearing yesterday, Greenspan, chairman of the Federal Reserve, said he opposed the idea. It was the first time that Greenspan has weighed in with an opinion on the subject.
Supporters like Securities and Exchange Commission Chairman Levitt, however, have said that investors would be better served if they could see all current bid and ask prices for all stocks in one central place. In a speech at Columbia University last month, Levitt said that the current market causes fragmentation of orders.
In his testimony yesterday, however, Greenspan said that competitive concerns must outweigh fragmentation concerns.
“Although fragmentation has some undesirable consequences, it is an inevitable part of the competitive process,” Greenspan testified. “In the short run, policy-makers should not attempt to anticipate the outcome of the competitive process.”
By taking that position, Greenspan lends support to the NYSE Chairman Dick Grasso, who also opposes a linkage of the different markets.
But some of the biggest brokerage firms, including Merrill Lynch and Goldman Sachs, sent their chairmen to Senate Banking Committee hearings last month to support the proposal to centralize the markets. Merrill’s David Komansky and Goldman’s Henry Paulsen said that a central market would make for cheaper, more efficient trading.
Greenspan is often believed to be the most influential voice on Wall Street, but his power to implement his point of view on the centralized market is limited.
As chairman of the Fed, Greenspan can only raise or lower short-term interest rates and margin requirements.
It is the SEC that regulates actual market structure. And it is the SEC that will make the final decision on centralizing markets.
The SEC is now collecting public comment on a draft proposal that would end fragmentation among the 18 exchanges, regional markets and electronic networks that compete for trading business. It hasn’t yet decided how to move forward with any proposal to link the markets.
In fact, the SEC has proposed six different alternatives to end that fragmentation, one of which calls for electronically linking the different markets.
That’s the proposal that Greenspan said he opposed.
But he voiced support for some of the less drastic measures called for in the SEC proposal. For example, Greenspan agreed that there should be greater public disclosure about how the various exchanges and brokerages handle orders and execute trades.
“Buyers and sellers should be fully cognizant not only of the characteristics of goods being bought and sold, but also of the costs and methods by which trading occurs,” he said.
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TALE OF THE TAPE: Arthur Levitt – Alan Greenspan